Cash for Clunkers a near-total failure says … the Brookings Institute

posted at 12:01 pm on November 5, 2013 by Steve Eggleston

With all the stories about the massive failure that is Obamacare, especially the exchanges, that are finally out and about, it is easy to forget the earlier policy and fiscal failures of the Obama administration. Fortunately, the Brookings Institute didn’t forget about the “Cash for Clunkers” program. In a report released last week, they found that the $2.85 billion, 2-month program essentially merely time-shifted the purchase of new vehicles forward a few months (H/T – Kevin Binversie). From the conclusion of the research paper:

The primary motivation for the CARS program was to provide temporary stimulus to counter the economic contraction that was occurring at that time, while also reducing fuel consumption and thus emissions. The evidence suggests that the program did indeed incentivize the sale of more fuel efficient vehicles by pulling sales forward from the near-term future. This resulted in a small and short-lived increase in production, GDP, and job creation. However, the implied cost per job created was much higher than alternative fiscal stimulus policies. Further, these small stimulus effects do not account for the depletion of the capital stock that resulted from the destruction of used vehicles….

The CARS program led to a slight improvement in fuel economy and some reduction in carbon emissions. The cost per ton of carbon dioxide reduced from the program suggests that the program was not a cost-effective way to reduce emissions, although was more cost effective than some other environmental policies, such as the tax subsidy for electric vehicles or the tax credit for ethanol.

The pull-forward component of “Cash for Clunkers” was explored through two separate metrics – the effects of the spike in sales in July and August 2009 on sales in the following months, and a year-long comparison of sales, between July 2009 and June 2010, in locales with a high number of “clunker”-eligible vehicles and sales in locales with a low number of “clunker”-eligible vehicles. Sales dropped massively in September 2009 after “Cash for Clunkers” ended, and didn’t return to the longer-term trendline until the end of 2009. Meanwhile, there was no appreciable difference in total sales between high-”clunker”-eligible locales and low-”clunker”-eligible locales.

Brookings estimated that a bit over 2,000 jobs were, to use an old Obama phrase, saved or created with that $2.85 billion, for a per-job saved/created cost of $1.4 million. It did result in some overtime for the manufacturing employees as they hustled to restock depleted car lots, but given the evidence that virtually all of the sales would have happened sometime during the 2010 model year, I would tend to discount even that 2,000 “saved or created” claim.

Just how slight of an improvement in fuel economy/carbon dioxide was Cash for Clunkers? Over the 10-12 years’ lifetimes of the vehicles bought, perhaps 2 to 8 days’ worth of gasoline, at current consumption levels, would not be burned, or somewhere between 0.06% and 0.2% savings.

That leads into the other government meddling in the automotive industry, specifically the latest government estimates on how much seizing Governme…er…bailing out General Motors and the United Auto Workers has cost us taxpayers. The Treasury Department has been slowly unloading its holdings, anticipating being fully divested by April 2014, and was down to a 7.3% stake in GM as of September 30. The latest Special Inspector General’s report says that $15 million of the $50.2 billion $43 billion spent on the GM portion of the auto bailout (the $6.7 billion “loan” given GM upon exiting bankruptcy was “repaid” with other funds gifted to them by the Treasury) was still outstanding, and $9.7 billion of that is already written off as unrecoverable. The bad news – if the Treasury gets the $37.47/share price GM stock closed at yesterday when they finish unloading their shares, they would get a bit less than $3.8 billion on their last claim from GM. That would put the final loss on the GM portion of the auto bailout at a bit more than $12.2 billion.

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No, I don’t agree. Here’s what is crazy to me. OK, so CA is dying, right? The big story? The DMV can’t fund their training program for supervisors.

I’m not kidding you.

Now, I worked in a Top-100 company for my career. Let me state, without equivocation, these are frankly official “break” classes. By that I mean, you won’t gain a single skill, you will get a break from your daily grind, etc.

That is where CA is in downsizing?

I’m sorry. I’m just too, too hardcore for this nonsense.

I watched my company go from 8,000 to 0. I wrote the dang letters laying off myself.

I really was one who turned off the lights.

I cannot imagine that the state governments are still back in the 80′s with having to give up training programs that yield zero.

That’s completely different from a program that stimulated car sales.

I have real friends who are surviving because of this goofy program. They sold cars out the kazoo for years. The crash stopped it.

They are surviving because of that goofy program. I think the car sales industry got a breath of life. That’s all.

It’s not going back to “Hummer” time, for sure.

But it could go back to reasonable.

Otherwise, what do you suggest? Go to Mexico style? We all buy clunkers which are really clunkers?

Brookings estimated that a bit over 2,000 jobs were, to use an old Obama phrase, saved or created with that $2.85 billion, for a per-job saved/created cost of $1.4 million. It did result in some overtime for the manufacturing employees as they hustled to restock depleted car lots, but given the evidence that virtually all of the sales would have happened sometime during the 2010 model year, I would tend to discount even that 2,000 “saved or created” claim.

Just how slight of an improvement in fuel economy/carbon dioxide was Cash for Clunkers? Over the 10-12 years’ lifetimes of the vehicles bought, perhaps 2 to 8 days’ worth of gasoline, at current consumption levels, would not be burned, or somewhere between 0.06% and 0.2% savings.,

Another indictment against any possible consideration that the present Administration is ‘competent’.

That leads into the other government meddling in the automotive industry, specifically the latest government estimates on how much seizing Governme…er…bailing out General Motors and the United Auto Workers has cost us taxpayers.

The real goal and interest of this Administration is government meddling / control of major markets and industries to ensure ‘fairness’ and ‘justice’ – as they define ‘fairness’ and ‘justice’.

Look at Obamacare, the seizure of 1/6th of the national economy by the Federal government. How much turmoil, premium increases, lost healthcare coverage, and massive government spending is taking place to ‘fix’ the problem of 20-25 million ‘uninsured’?

In this, Obama’s economic plans are about as successful as one of Stalin’s 5 Year Economic Plans….

I benefited from Cash For Clunkers and the Auto Bailout, but not by participating in either.

I early 2009, we needed to replace out 20-year-old minivan. It was before Cash For Clunkers and the Bailout. We ended up buying a year old Dodge Grand Caravan — low mileage for about $10,000. Prices were really depressed due to a spike in gas prices and the fear that Chrysler would go bankrupt.

Today, that 2008 Caravan blue-books for about $10,500 trade-in. Why? Because C4C destroyed a lot of large, used vehicles. Reduce supply and as demand increases, prices go up. So I actually have a car that is worth more today than I paid for it when I bought it four years ago.

Well, it got the last of the MY2009 cars off the lots in record time. Other than that (which definitely wasn’t worth $2.85 billion in taxpayer money, or $2.85 million, or $2.85), it was a total failure.

and because of the destruction requirement on the “clunkers” – many of which were very good vehicles – the supply of used vehicles (and parts) on the market was reduced and prices increased.

2nd Ammendment Mother on November 5, 2013 at 12:08 PM

Used car prices still seem ridiculosly high in my area, and the supply seems low. I’ve been helping my son look for a cheap used car, there’s not much out there, and what they have is overpriced compared to book value, but still selling quickly.

and because of the destruction requirement on the “clunkers” – many of which were very good vehicles – the supply of used vehicles (and parts) on the market was reduced and prices increased.

2nd Ammendment Mother on November 5, 2013 at 12:08 PM

Used car prices still seem ridiculosly high in my area, and the supply seems low. I’ve been helping my son look for a cheap used car, there’s not much out there, and what they have is overpriced compared to book value, but still selling quickly.

mbs on November 5, 2013 at 12:17 PM

No Truce With Kings on November 5, 2013 at 12:15 PM

I’ll hazard a guess that situation will continue for another 3-5 years.

they’re forced to sell all those cars they wouldn’t have to otherwise!

c4c clearly hurt their business.

sesquipedalian on August 19, 2009 at 9:44 PM

Well clearly people are too lazy or stupid to trade in their polluting shltboxes, which hurts the rest of us.

Lording over you? Spare me the drama.

And do you only whip out your outrage at government programs during Democrat administrations?

Dave Rywall on August 27, 2009 at 12:03 PM

Ithink this program, highly sucessful, also a fiasco;spells out the current polls.

AnninCA on August 2, 2009 at 3:32 PM

So sales might drop a bit after they skyrocketed. The horror!

An estimate issued Monday by the White House Council of Economic Advisers said the program is projected to boost U.S. third-quarter gross domestic product by 0.3 to 0.4 percentage points and create 42,000 jobs by the end of 2009.

Come on guys, I know you can do it. All together now…
Thank you President Obama.

crr6 on August 25, 2009 at 5:44 PM

I’m just glad my friend who sells Fords made some sales. He’s been in a panic.

He’s working around the clock with this program. It’s a true stimulus.

The latest Special Inspector General’s report says that $15 million of the $50.2 billion $43 billion spent on the GM portion of the auto bailout (the $6.7 billion “loan” given GM upon exiting bankruptcy was “repaid” with other funds gifted to them by the Treasury) was still outstanding, and $9.7 billion of that is already written off as unrecoverable. The bad news – if the Treasury gets the $37.47/share price GM stock closed at yesterday when they finish unloading their shares, they would get a bit less than $3.8 billion on their last claim from GM. That would put the final loss on the GM portion of the auto bailout at a bit more than $12.2 billion.

I remember back in the 1970′s when the Government bailed out Chrysler, people were actually complaining when the Government made a profit on the sale of the shares, and saying the profits should be refunded to the taxpayers.

Wouldn’t it be hilarious if the newsies started doing their jobs? What if they suddenly reported–not only on current events–but on everything they missed in the last five years? Can you imagine the shitstormnado?

It did result in some overtime for the manufacturing employees as they hustled to restock depleted car lots…

Just how slight of an improvement in fuel economy/carbon dioxide was Cash for Clunkers? Over the 10-12 years’ lifetimes of the vehicles bought, perhaps 2 to 8 days’ worth of gasoline, at current consumption levels, would not be burned, or somewhere between 0.06% and 0.2% savings.

And they’re apparently only counting gasoline costs/pollution and not addressing energy used and emissions released in producing brand new cars vs. the “clunkers” that still ran and didn’t require additional energy and additional pollution to mine, refine, build, and ship.

I remember back in the 1970′s when the Government bailed out Chrysler, people were actually complaining when the Government made a profit on the sale of the shares, and saying the profits should be refunded to the taxpayers.

Those were the good old days…

Steve Z on November 5, 2013 at 12:32 PM

I also remember the Iacocca-era Chrysler paying back the loans in full, ahead of schedule, and with normal operating cash. GM, on the other hand, paid pretty close to $0 out of its own pockets (if memory serves, just the warranty loan and a part of a pre-bankruptcy loan), with the lion’s share of the GM “repayments” coming from investors.

Economies don’t grow by taking working automobiles (the second largest capital expenditure for most households) and destroying their value by deliberately turning them into junk. That is just wasting resources, and wasting resources always impoverishes a nation. The Democrat’s plan to force the use of “renewable energy” is just more of the same, where cheap, efficient, reliable energy sources are systematically discarded in favor of expensive, unreliable ones.

Maybe Democrats don’t really want to destroy our economy. But it’s hard to see what they’d do differently if they did.

That’s what I figured. Adding up the TARP losses, the stock sale losses (including those coming up next year), and the tax losses, we’ll probably end up with a total taxpayer cost closer to the $50 billion that some industry experts predicted.

I wonder how many millions of taxpayer dollars per job “saved” that will turn out to be?

That’s what I figured. Adding up the TARP losses, the stock sale losses (including those coming up next year), and the tax losses, we’ll probably end up with a total taxpayer cost closer to the $50 billion that some industry experts predicted.

I wonder how many millions of taxpayer dollars per job “saved” that will turn out to be?

AZCoyote on November 5, 2013 at 12:56 PM

The stock sale losses are part of the TARP-book. On that front, there’s a $2.9 billion loss on Chrysler (which is the final figure), and currently $14.6 billion still owed by GMAC/Ally Financial.

If memory serves, that special tax treatment GM received (and which is available to certain other TARP deadbeats) is somewhere on the order of $40-$45 billion over the next several years.

That pretty much describes the history of the Obama Administration since January 2009.

It’s not a total failure, after all, Barack Obama did get Usama Bin Laden, as well as expanded the previous Administration’s drone programs to attack jihadi leaders. But beyond that, yeah, pretty much ‘a near-total failure’.

Waiting on the latest government ‘Catch-22′ – the IRS not only taxing you as ordinary income for the subsidy you received, but then revoking or reducing the subsidy since the new ordinary income amount moves you out of qualifying for the subsidy.

I remember watching those videos where the C4C cars are murdered – depressing. The Volvo in the picture starts to catch fire at the end. All those used cars that poor people could have bought, destroyed.

C’mon you guys! It wasn’t a total failure! It depressed the price of sports cars enough to let me practically steal one that is now still worth what I paid for it. And it gets a stellar 18mpg on the highway!

The bad news – if the Treasury gets the $37.47/share price GM stock closed at yesterday when they finish unloading their shares, they would get a bit less than $3.8 billion on their last claim from GM. That would put the final loss on the GM portion of the auto bailout at a bit more than $12.2 billion.

To Obama and the Democrats $12.2 Billion is a small price to pay for gifting General Motors to their biggest supporters, the unions.